NZ Accounting Tax
What is all this talk about 'off-setting losses'?
Offsetting losses refers to using your losses from your investments to reduce your overall tax from your PAYE or self employed salary.
e.g. You earn $80,000, your investment properties cost you $8,000. You’ll then only pay tax as though you earned $72,000.
In this scenario, you’d save $2,640 of Tax by having a legitimate loss such as this.
What is depreciation and how does it help me?
In theory, as things grow old, they lose value - This is called ‘depreciation’. It can work in your favour because it reduces your taxable income. In other words, it can reduce how much income tax you pay on your regular salary/wages.
Because property doesn’t follow this normal trend (it goes up in value), recent legislation no longer allows property investors to claim depreciation deductions on their house or land BUT you can deduct depreciation from chattels.
What are chattels?
Chattels are the additions to your property which don’t form part of the main dwelling.
Here's what chattels you should be depreciating on your rental property:
Curtains & Blinds, Appliances, Aerials, Air Conditioners, Alarms, Driveways & Patios, Carpet & Vinyl, Clothesline, Fences, Fitted Furniture, Heaters, Mailboxes, Garage Door Motors, Mirrors, Fans, Water Heaters
What is the ‘Brightline test’?
The Brightline test is the new rule applied to property investors to determine whether the capital gain is taxable or not. New Zealand has had capital gains tax in place for years but has only applied it by ‘intent’. In other words, if you didn’t intend to make a capital gain, you wouldn’t be taxed for it. Now they’ve tried to make intent less ambiguous by saying ‘If you buy and sell your investment property within two years, your intention was the gain, so you can pay tax’.
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